Don’t Let Uncle Sam Babysit Your Savings
Please stop acting like you’ve won the lottery when you get your tax refund – that was your money to begin with! I know some people purposely have their employer withhold too much money on their paychecks so they get a big refund. Why is this a bad idea?
First, you are earning 0% interest on this money. If you have debt of any kind – credit cards, student loans, or a mortgage – you’re better off paying down those interest charging accounts, rather than letting Uncle Sam hang onto it interest-free.
Second, some of you are living paycheck-to-paycheck 11 months out of the year, then acting like you’re rich the month your refund hits your account. I’d much rather see you adjust your withholdings so that your refund is very small, but you have more financial breathing room the rest of the year.
Third, if you have a financial emergency, you cannot access the money you’ve overpaid the government until Tax Time. Big mistake! You may end up having to borrow money to fix your car or pay that medical bill. Instead of overpaying your taxes, have your employer split deposit your check and put that money into a savings account.
Rather than getting a tax refund of several thousand dollars every year, adjust your withholdings – with the assistance of your CPA or tax professional – and put that money to better use, to help you make progress on your journey to financial health.